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UPDATE 2-TPG walks away from $713 mln Billabong bid; shares tumble

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* Second bidder exits after inspecting books

* Billabong shares tumble 16 pct to record low

* Company says focused on internal turnaround plan

(Adds shares)

SYDNEY, Oct 12 (Reuters) - Private equity firm TPG haswithdrawn a A$694 million ($713 million) takeover bid forAustralian surfwear retailer Billabong International Ltd, the second bidder to exit after inspecting its books,knocking the stock to a record low.

Neither TPG nor Billabong gave a reason for the withdrawal,but the move caps a tumultuous year for Billabong. Threetakeover bids have failed, the company dumped its chiefexecutive in May after several profit warnings and it revealedits first annual loss since listing a decade ago.

"When two bidders have walked away after seeing the books,the first question in investor minds is: what is hiding in thebooks? The TPG withdrawal is a big negative for the stock," saidStan Shamu, market strategist at IG Markets.

Billabong shares tumbled 16 percent to 84.5 cents a share inmorning trade, a record low for the stock that was trading atten times that level less than two-and-a-half years ago.

Deutsche Bank in a note to clients dated last week put afundamental valuation on the stock of 85 cents a share.

TPG's withdrawal means shareholders will have to rely on thecompany's recently outlined four-year plan to simplify thebusiness in the hope of reviving falling sales and restoringprofitability, analysts said.

Billabong Chief Executive Launa Inman declined to comment onthe bid withdrawal at a media conference call on Friday, sayingshe was pushing forward with her plan to revive the firm.

"I have been focussed on the transformation strategy," saidInman, who previously headed discount chain Target, owned byWesfarmers Ltd . "The next three months are crucial."

The surfwear retailer has suffered falling sales in Europe,Canada and Australia as the brand has been losing its cachetwith young shoppers.

Billabong has already conceded investors would have to waittwo years to see the biggest benefits of the new strategy.

SERIES OF APPROACHES

Billabong was initially approached by TPG in February butrebuffed an offer of A$3.30 a share, opting instead to sell halfof its watch brand Nixon and raise A$225 million in equity toreduce debt.

The stock continued to sag and TPG, which has a 12.5 percentstake in the company, returned with a reduced bid in July. Rivalbuyout firm Bain came in with a bid in September, only to dropout two weeks later.

Billabong shares fell sharply below TPG's offer price of$1.45 last week when the buyout firm said it had "concerns inrelation to some issues" over the bid.

The environment for retailers in Australia has been toughwith nimbler online rivals competing aggressively on price andAustralians switching to savings in the wake of the globaleconomic crisis.

Government figures showed the nation's retail sales rosejust 0.2 percent in August from July, when they slipped 0.8percent.

Billabong's competitors include Quiksilver Inc ,Pacific Sunwear of California Inc , Zumiez Incand Rip Curl.

Rip Curl said last month it had received unsolicitedapproaches from several international companies wanting toinvest in the privately held firm, in a deal that could fetch upto A$480 million.($1 = 0.9735 Australian dollars)

(Reporting by Narayanan Somasundaram; Editing by John Mair andRichard Pullin)

((narayanan.somasundaram@thomsonreuters.com)(+61 293731815)(Reuters Messaging:narayanan.somasundaram.reuters.com@reuters.net))

Keywords: BILLABONG TPG/